Barry W. Ickes Based on Gaddy and Ickes, Russia s s Addiction: The Political Economy of Resource Dependence.

Transcription

1 Barry W. Ickes Based on Gaddy and Ickes, Russia s s Addiction: The Political Economy of Resource Dependence. July 29, 2010

2 Russia: A History of Resource Dependence Russia has a long history of resource dependence. The expansion of the Russian state into Siberia was induced d by the potential ti wealth situated t there, primarily il fur pelts. In the Seventeenth Century as much as 12% of state revenue came from fur pelts sales. Oil and gas have shaped Russia since the first discoveries of oil in Baku in the 19 th century July 29, 2010 Prepared ICCEES VIII, Stockholm 2

3 Soviet Resource Dependence The command economy has always been resource intensive. This is a by product of the haste and inefficiency associated with the command mechanism. Soviet growth has always been dominated by the extensive margin: mobilizing i resources for growth Key factors Emphasis on industrialization Lack of functioning price system First phase was abundant labor Collectivization and prison labor July 29, 2010 Prepared for the ICCEES VIII Stockholm 3

4 Resource Abundance and STE Resource Abundance reinforced the system Grossman: In sum, the Soviet economic system became what it is in part thanks to the country s rich resource base, which permitted the planners largely to ignore the day to day discipline of the bl balance of payments and therefore also the imperatives of the market place and the pains of real economic cost. On this basis an elaborate and rigid institutional edifice sprang up. This economic system thrived for two human generations and achieved marked successes by its own criteria. But inevitably it hardened and came to be supported and protected by powerful vested interests [Grossman, 1983: 202]. July 29, 2010 Prepared for the ICCEES VIII Stockholm 4

5 Two Key Points Resource Abundance delayed realization of the consequences of waste from harming the system Resource Abundance led to addiction The supported and powerful vested interests were widespread Lack of transparency reinforced that Once this fundamentally nonviable ibl structure had been created, continued injection of resources was required to sustain it. vicious circle: the more resource wealth there was, the more mistakes could be made. The more mistakes that were made, the more resource wealth was required to perpetuate the system July 29, 2010 Prepared for the ICCEES VIII Stockholm 5

6 Rent Management Systems All resource abundant economies need a RMS The purpose of the RMS is to prevent the dissipation of rents. If the RMS is weak then rents will be appropriated at the source of production. If the RMS is centralized and powerful rents will flow upwards to the leadership. RMS can be strong or weak, depending on whether rents are grabbed or not July 29, 2010 Prepared for the ICCEES VIII Stockholm 6

7 RMS in the STE RMS in the STE took particular form Rents could not be consumed on the scale they were earned Nor could rents be easily shifted to private accounts abroad. impossible in a controlled economy. The use of rents in a Soviet system was constrained. The primary use of rents in the STE was in production. This is the primary source of addiction to resource rents: it stems from the limited uses to which rents can be employed in a Soviet type economy In the Stalinist period the RMS utilized terror to minimize dissipation of rents July 29, 2010 Prepared for the ICCEES VIII Stockholm 7

8 The Soviet Oil Boom In the 1970s this structure received a boost with the rapid, and unexpected, growth in rents that occurred from the West Siberian i oil boom More important, the OPEC price shock Resource boom postponed the need to implement necessary reforms Rents rose dramatically as did GDP July 29, 2010 Prepared for the ICCEES VIII Stockholm 8

9 Russian Oil and Gas Rents and GDP Russian Oil and Gas Rents and GDP, Real GDP (1970=100) 220 Oil & Gas Rents (2007 USD) $ $ $ $ $ $0 July 29, 2010 Prepared for the ICCEES VIII Stockholm 9

10 Growth Accounting Why does rise in oil prices lead to growth acceleration? Real GDP should be unaffected by price change Terms of trade effect Dutch disease could reduce growth Russian disease and addiction has two effects Addiction through production accelerates investment Demand shift with Soviet prices leads to increase in measured real value added This shows up as higher TFP July 29, 2010 Prepared for the ICCEES VIII Stockholm 10

11 US and Soviet Oil Output US and Soviet Oil Output, Millions of barrels per year ,000 4,000 United States 3,000 2,000 USSR 1, July 29, 2010 Prepared for the ICCEES VIII Stockholm 11

12 Sharing Rents in the Soviet Period The really distinctive thing about the Soviet system of value redistribution, however, was that it was carried out mainly via production Elites could not allocate flows of rent as in other countries The only political/ideologically acceptable way to distribute rents was through production Power bought that way Led to structural changes that were like physiological July 29, 2010 Prepared for the ICCEES VIII Stockholm 12

13 Russian Disease Contrast with Dutch Disease Oil and gas boom didn't squeeze out manufacturing. They fed the inefficient, i old dinosaur industries i of the USSR, mainly big defense industries, but others as well. Moreover, the explosion in rents fueled an expansion of new activities and a new defense buildup. Lack of transparency fueled legitimacy Like ethanol in US July 29, 2010 Prepared for the ICCEES VIII Stockholm 13

14 Addiction Three characteristics of addiction Tolerance the need for an increasing amount of the substance to obtain the same effect; Withdrawal severe unpleasant effects when the addict ceases to use the substance; and Craving willingness to sacrifice all in order to obtain and use the substance July 29, 2010 Prepared for the ICCEES VIII Stockholm 14

15 Addiction in the STE Three characteristics of addiction Tolerance the need for an increasing amount of the substance to obtain the same effect; Withdrawal severe unpleasant effects when the addict ceases to use the substance; and Craving willingness to sacrifice all in order to obtain and use the substance July 29, 2010 Prepared for the ICCEES VIII Stockholm 15

16 Consequences of Addiction Addiction through production created permanent features of the economy Oil boom led to new addicts But rents grew 33 fold from Agricultural imports only 6 fold Rents went into production When rents declined the claimants remained the production apparatus created when rents were flush was still there Continues to claim rents, even today July 29, 2010 Prepared for the ICCEES VIII Stockholm 16

17 New Addicts July 29, 2010 Prepared for the ICCEES VIII Stockholm 17

18 Soviet Agricultural Inputs and Outputs Soviet Agricultural Inputs and Output, =100 Electricity in production Electricity Capital Energy (HP) Output Workers July 29, 2010 Prepared for the ICCEES VIII Stockholm 18